Using Your RRSPs - One of the Benefits to Canadian Mortgages
Canada has a lot of good programs that help homeowners through things such as heating rebates and tax incentives for energy-efficient appliances. But, one of the biggest benefits the Canadian government gives its homeowners is a perk that comes even before a home is purchased - and that's with the Home Buyer's Plan, the program that allows you to tap into RRSPs and use them as a down payment on Canadian mortgages. And, unlike if you had withdrawn the funds for other purposes, withdrawing the money does not affect your income taxes.
The Home Buyer's Plan is a program that was created by the Canada Customs & Revenue Agency (CCRA) to assist homebuyers in obtaining the down payment for their first home. Initially, the program allowed homebuyers to withdraw up to $20,000 from their RRSP to use as a down payment towards their mortgage. But, federal changes to the budget in 2009 increased that amount to $25,000. Multiple people can each withdraw up to the maximum amount from their RRSPs and put it towards the same mortgage down payment. This is often most beneficial for couples that want to purchase a home, because they can each withdraw from their RRSPs and be able to give a bigger down payment.
Using RRSPs for Canadian mortgages is tax-free but that is because under the Plan, a homebuyer must be able to repay the money, beginning with the year after the money is taken out. After that time, the homeowner then has 15 years to put the money back into the RRSP, before the money becomes taxable and other penalties are added. At least 1/15 of the funds must be replaced every year for the 15 years and if not, the remaining overdue balance will be charged as income for that year. The time left to pay back the loan does not start at the time the loan is given, but one year after the withdrawal date.
There are a few other requirements that homebuyers must comply to, such as that they must be a first-time homebuyer, and only Canadian mortgages are eligible under the Plan. In addition to that, the homebuyer must also have purchased or built the home prior to October 1 the year after the RRSP withdrawal is made. Also, only RRSP contributions that were made 90 days prior to the withdrawal date, or before, are eligible.
The Home Buyer's Plan is a great program that opens up the doors of home ownership to many people. However, the program can be somewhat confusing, especially for first-time homebuyers who are already feeling a little overwhelmed. Finding a mortgage broker that can help guide you through the process of using your RRSP for a down payment is a great way to make sure that you're getting the most out of doing so, and that you'll actually be able to reap the benefits of this program for Canadian mortgages.
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